City asked to finance repairs to low-cost apartments

City officials have fielded requests totaling $720,225 from groups who say they need help paying for needed repairs at a quintet of “affordable housing” complexes that cater to low-income renters.

Community Department Department staffers briefed the City Council on the requests recently, and said the alternative to funding them likely is letting the 77 units involved turn into market-rate rentals.
The prospective source of the money is the city’s “penny for housing” annual set-aside of about $2.4 million in property tax revenue each year. Officials figure some will come from this year’s reserve, with the rest coming from previous years’ collections.
“We saw this as one-time opportunity to address these projects,” Community Development Assistant Director Larry Jarvis said, adding that the targets are the Rockwood Cottages, Mutual Manor, the Mathison Apartments, Morehead Glen and West Park.
Rockwood, Mutual and Mathison are controlled by Woodland Associates Inc. Durham Community Land Trustees Inc. owns the other two.
All cater to renters who make between 50 and 60 percent of the area median income, and Community Development would like to keep it that way.
But the problem is that the rents Woodland and the land trustees are able to charge for the units are high enough only to meet normal operating expenses. There’s nothing left over to reserve for major upkeep like roof, appliance, heating and cooling replacements.
That’s a traditional problem for public and “affordable” housing projects, and one the N.C. Housing Finance Agency is now addressing in the projects it subsidizes by requiring sufficient cash flow to create a “replacement reserve” for each unit.
All of the projects Community Development wants to target, however, predate that requirement. All the units have been around for at least a couple of decades.
The city helped finance development of all five projects, and still holds notes worth about $2.2 million for them. But in reality, that money is more grant than loan.
“Without these improvements, the properties are going to continue to deteriorate,” Jarvis told the council. “The alternative is the properties could be sold and converted to market-rate [rentals], which would result in the loss of affordable housing.”
Council members were amenable to the request, effectively giving Community Development the green light to work out separate funding agreements with Woodland and the last trust for each of the five projects.
“If we had to replace this level of affordable housing by building it, it would be very expensive,” Councilman Steve Schewel said.
But City Manager Tom Bonfield said he’ll insist, as the separate funding deals are negotiated, on the inclusion of provisions to “be sure we don’t find ourselves in this situation again.”
He elaborated on Friday, agreeing the $250-per-unit-per year reserve requirement the N.C. Housing Finance Agency imposes on the cash flow of new projects likely isn’t high enough for developments as small as these.
Had it been in place when the five were initially financed, the owners would still be $351,725 short of covering the repair expenses they now face.
Bonfield said there’s an economy-of-scale problem with small projects that means “the smaller the number of units, the more you have to set aside” of cash flow for future repairs.
“The $250 wouldn’t be the right number on a smaller scale project,” he added.
He added he’ll ask Community Development to see to it that affordable-housing providers take the same sort of approach to maintenance-expense planning the city does on large-scale projects like the Durham Performing Arts Center.
That means mapping out likely future repair needs and running the numbers on what needs to be saved to finance them.
“I don’t want the next city manager 20 years from now to have to deal with it,” Bonfield said. “I want to know it’s dealt with, that we have the systems and requirements put in place to put that money to the side and keep it aside, not use it for other things.”